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Donald Herbert Hayes
Posted - 2011.06.27 18:50:00 - [1]
 

Can you make any sense of this?

CCP hf.
Consolidated Financial Statements
2010

Rot Thun
Posted - 2011.06.27 19:24:00 - [2]
 

The pages 7-9 are pretty clear if you are familiar with financial statements. If not, try google for a quick primer.

The thing that confuses me is considering development costs an asset. Note 12 doesn't really clear things up for me. Anyone have any insight?

clixor
Celluloid Gurus
Posted - 2011.06.27 19:28:00 - [3]
 

Interesting, seems CCP is making quite some profit after all.

Not one single mention of PLEX in the whole document though. Seems that they just add the PLEX revenue under 'subscription' income.

Claire Voyant
Posted - 2011.06.27 19:30:00 - [4]
 

Edited by: Claire Voyant on 27/06/2011 19:38:02
Deferred Income went from 0.78 months to 0.75 months of Subscription Income. That seems really low to account for prepaid subscriptions and PLEX. Haven't read the notes yet.

Edit: Copy and paste is not working for me, but from notes 3.71 and 3.72 I would say that PLEX are not currently accounted for on their balance sheet.

Wyke Mossari
Gallente
Posted - 2011.06.27 19:56:00 - [5]
 

Edited by: Wyke Mossari on 27/06/2011 20:14:59
Edited by: Wyke Mossari on 27/06/2011 20:11:03

Their revenue is increasing, but their expenses are rising faster.

They made a paper profit in 2010 of 5.4M, which is less than the previous years 6.1M.

The profit is a paper profit only. It looks like they are capitalising the bulk of the development cost, increasing that from 37.5 Million to 54.6.

There doesn't seem to be any break down of this between EVE, Dust & WoD.

Conclusion:Profitable but bleeding cash reserves which seems to be funded via a bank loan.

In the current liabilities, forward contracts may be PLEX and these increased from 326k to 355k.



Herschel Yamamoto
Agent-Orange
Nabaal Syndicate
Posted - 2011.06.27 20:04:00 - [6]
 

Edited by: Herschel Yamamoto on 27/06/2011 20:09:58
Copied from my post to Failheap Challenge, where there's a pretty great discussion going on:

I've never actually done this in practice, so take my notes with a grain of salt, but I've studied it enough in theory to not be totally talking out of my ass. Here's a decent tl;dr for you all. That said, I encourage anyone with the inclination to actually read it themselves - I've only glanced at most of the notes, there may be some fun stuff buried there that I haven't noticed.

Income statement: For FY 2010, CCP earned $59.2M in gross revenue, and spent $52.7M on operating expenses - GMs, servers, advertising, credit card fees, all that. On top of that, they spent $1.3M on interest, $1.5M on adverse changes in exchange rates, and actually earned $1.7M in tax credits. Total profit on the year was $5.4 million.

Balance sheet: The biggest change here is an increase of $17 million in capitalized development costs, which is to say the amount of money they've spent "buying" code over and above the depreciation in the value of old code. That $17M total is $23.5M in expenses minus $6.5M in depreciation, and it looks to cover all three games. The company also raised $16M from selling additional stock to its existing owners(this technically happened in FY 2009, but they actually got the cash in FY 2010). On the liabilities side, they didn't borrow any new money, but they do have a rather hefty loan(almost $12M) coming due this October.

Cash flows: As you might expect from the above, the cash flows were positive mostly because of the stock sale. They sold $16M of stock, and total cash went up $7.4 million, which means that their burn rate is about $8.6M for the year. The vast majority of this can be explained with profit less net capitalized development(those two combined yield $9.6M in negative cashflow), with the other million coming from the net of things like running up liabilities(+$1.3M), tax credits(+$2M), income tax paid(-$1.7M - it's based on taxable income in 2009, which was positive), burning down inventory(+$0.8M), purchases of property and equipment(-$2.4M), and some other small fry.

In sum, CCP is earning a paper profit, but because a huge proportion of their paycheques go to dev teams, they're actually burning cash fairly fast(net burn of $8.6M last year) and getting a gigantic code asset to show for it. They actually have more value of code than they have in total equity. As long as their code is worth money - i.e., as long as the three games are successful - that's fine, but it puts them in a bit of a cash crunch in the short term. They only have $11.2M of cash on hand, which is enough to get them to spring 2012 before they go broke(and, in practice, they're going to need cash to run, so they'll hit the wall earlier than that), and they have a loan worth $11.7M coming due on October 28th of this year. They've just hit up the investors for a huge cash injection a year ago, so that well is probably dry, and the terms of their loan state that they can't really borrow any more.

Now, it's not as bad as that might sound. While they have other liabilities - prepaid subscriptions, future tax bills, some money owed to their suppliers, etc. - that one loan is all they have in the way of bank debt. But this is a company that's burning cash, and if I were a bank, I'd want to ask some serious questions about release dates of their other would-be income sources before I agree to roll over(and expand, in all likelihood) the loan.

Major Stallion
The Money Shot Inc.
Posted - 2011.06.27 20:08:00 - [7]
 

Originally by: clixor
Interesting, seems CCP is making quite some profit after all.

Not one single mention of PLEX in the whole document though. Seems that they just add the PLEX revenue under 'subscription' income.


or sales...

Varo Jan
Caravanserai Consulting
Posted - 2011.06.27 20:18:00 - [8]
 

Originally by: Herschel Yamamoto
Balance sheet: The biggest change here is an increase of $17 million in capitalized development costs, which is to say the amount of money they've spent "buying" code over and above the depreciation in the value of old code. That $17M total is $23.5M in expenses minus $6.5M in depreciation, and it looks to cover all three games.

That's not buying code from external parties - it's capitalising the salaries of their own people who are working on new games.

RAW23
Posted - 2011.06.27 20:18:00 - [9]
 

Edited by: RAW23 on 27/06/2011 20:18:34
Paging Varo Jan. Would Varo Jan please report to this thread.

Edit - Lol. Missed by seconds.

Herschel Yamamoto
Agent-Orange
Nabaal Syndicate
Posted - 2011.06.27 20:22:00 - [10]
 

Originally by: Varo Jan
Originally by: Herschel Yamamoto
Balance sheet: The biggest change here is an increase of $17 million in capitalized development costs, which is to say the amount of money they've spent "buying" code over and above the depreciation in the value of old code. That $17M total is $23.5M in expenses minus $6.5M in depreciation, and it looks to cover all three games.

That's not buying code from external parties - it's capitalising the salaries of their own people who are working on new games.


Hence why I put the word in quotes.

Varo Jan
Caravanserai Consulting
Posted - 2011.06.27 20:29:00 - [11]
 

Originally by: Claire Voyant
Edited by: Claire Voyant on 27/06/2011 19:38:02
Deferred Income went from 0.78 months to 0.75 months of Subscription Income. That seems really low to account for prepaid subscriptions and PLEX. Haven't read the notes yet.

Edit: Copy and paste is not working for me, but from notes 3.71 and 3.72 I would say that PLEX are not currently accounted for on their balance sheet.

Not surprising. What that confirms is that PLEX are taken to revenue immediately.
In 3.71 it says, "Fees are non-refundable," and in 3.72 it says, "Revenue from the sale of goods is recognized when ... the Company has transferred to the buyer the significant risks and rewards of ownership of the goods." Those conditions are satisfied when a player buys a PLEX. How the player applies/uses (or loses) said PLEX is immaterial to CCP.

Long story short: there is no problem with PLEX.

Stormdweller
Posted - 2011.06.27 20:33:00 - [12]
 

Lets face the facts: Short of the unpredictable results of introducing MT or expanding their loan, raising EVE Subscription cost is the only "almost certain" way to obtain enough capacitor to continue the burn.

Tutskii
Posted - 2011.06.27 20:34:00 - [13]
 

I'm not sure that reads like CCP can afford a ton of bad publicity and to shed mass amounts of subscribers.

In fact, reading that and seeing the events of last week, unless their numbers are pretty good, some questions should arise about the path they are taking.

Dr Lebroi
Posted - 2011.06.27 20:35:00 - [14]
 

Also if there are thousands of unused PLEX out there in la-la land that CCP has already spent the revenue from this represents a lot of game time that won't be paid by subscriptions and also a promise of a service that remains outstanding. I wonder if that worries them?

Hexxx
Minmatar
Posted - 2011.06.27 20:35:00 - [15]
 

Originally by: Stormdweller
Lets face the facts: Short of the unpredictable results of introducing MT or expanding their loan, raising EVE Subscription cost is the only "almost certain" way to obtain enough capacitor to continue the burn.


You're ignoring another option, organizational right-sizing. YARRRR!!

Saving Face
Posted - 2011.06.27 20:36:00 - [16]
 

Let's put it in clear terms. If they can not get another loan they are bankrupt in October when they have to pay back that $12 million loan. MT in EVE may not actually have to be able to counter the burn rate but increasing profit from EVE would make it easier to get another loan.

Hexxx
Minmatar
Posted - 2011.06.27 20:42:00 - [17]
 

Originally by: Saving Face
Let's put it in clear terms. If they can not get another loan they are bankrupt in October when they have to pay back that $12 million loan. MT in EVE may not actually have to be able to counter the burn rate but increasing profit from EVE would make it easier to get another loan.





They have the capacity to sell equity, liquidate assets, cut costs, or a combination of that and more. Bankruptcy would only be likely if they were ALREADY on the ropes, which they aren't yet.

You're a little over eager beaver there. Very Happy

raukosen
Posted - 2011.06.27 20:48:00 - [18]
 

Originally by: Hexxx
Originally by: Saving Face
Let's put it in clear terms. If they can not get another loan they are bankrupt in October when they have to pay back that $12 million loan. MT in EVE may not actually have to be able to counter the burn rate but increasing profit from EVE would make it easier to get another loan.





They have the capacity to sell equity, liquidate assets, cut costs, or a combination of that and more. Bankruptcy would only be likely if they were ALREADY on the ropes, which they aren't yet.

You're a little over eager beaver there. Very Happy


So either they axe WoD or SoE buys them
Sound good to me

Saving Face
Posted - 2011.06.27 20:50:00 - [19]
 

Originally by: Hexxx
They have the capacity to sell equity, liquidate assets, cut costs, or a combination of that and more. Bankruptcy would only be likely if they were ALREADY on the ropes, which they aren't yet.



They generated their positive cash flow in 2010 by selling equity so they are already there.

They can not liquidate much in the way of assets because most of it is a huge rainbow cloud of code that they wrote; it has no real value, the number is just what they pumped into it in dev cost.

They can cut cost by firing developers. However if that causes them to miss the schedule for Dust or WoD then they are in an even worse position than before. If it causes them to lose revenue from EVE they have no income anymore.


SencneS
Rebellion Against Big Irreversible Dinks
Posted - 2011.06.27 20:50:00 - [20]
 

Originally by: Varo Jan
Originally by: Claire Voyant
Edited by: Claire Voyant on 27/06/2011 19:38:02
Deferred Income went from 0.78 months to 0.75 months of Subscription Income. That seems really low to account for prepaid subscriptions and PLEX. Haven't read the notes yet.

Edit: Copy and paste is not working for me, but from notes 3.71 and 3.72 I would say that PLEX are not currently accounted for on their balance sheet.

Not surprising. What that confirms is that PLEX are taken to revenue immediately.
In 3.71 it says, "Fees are non-refundable," and in 3.72 it says, "Revenue from the sale of goods is recognized when ... the Company has transferred to the buyer the significant risks and rewards of ownership of the goods." Those conditions are satisfied when a player buys a PLEX. How the player applies/uses (or loses) said PLEX is immaterial to CCP.

Long story short: there is no problem with PLEX.


That is both good and bad to hear to be honest. While I like knowing for sure that do count PLEX revenue the second they are purchased, it's now a puzzle as to why they have been pushing for years to burn off excessive stockpiles of PLEX..

Their actions would say PLEX is some sort of thing they don't like appearing on their books but if what you say is true, then why would they care if they have a billion PLEXes un-used in game? Off the top of my head I can't think of any motivation for a company to push for something like they have. It doesn't boost sales, it's not a liability, it's not unrealized revenue, I can't think of a reason other then those three.

The only real thing, and it's a stretch is they want PLEX consumption to happen in order to keep them higher priced?? That seems counter productive considering they mark each PLEX as revenue the second it's sold.. I would push for a "cheaper" PLEX so more must be purchased to obtain player ISK goals.

--

Vaerah Vahrokha
Minmatar
Vahrokh Consulting
Posted - 2011.06.27 21:05:00 - [21]
 

Interesting cash flow, interesting good will.

Raid'En
Posted - 2011.06.27 21:08:00 - [22]
 

so...
MT would help them for short term, while it's not the end of the world ?

Varo Jan
Caravanserai Consulting
Posted - 2011.06.27 21:19:00 - [23]
 

Originally by: SencneS
Originally by: Varo Jan
PLEX are taken to revenue immediately.
In 3.71 it says, "Fees are non-refundable," and in 3.72 it says, "Revenue from the sale of goods is recognized when ... the Company has transferred to the buyer the significant risks and rewards of ownership of the goods." Those conditions are satisfied when a player buys a PLEX. How the player applies/uses (or loses) said PLEX is immaterial to CCP.

Long story short: there is no problem with PLEX.


That is both good and bad to hear to be honest. While I like knowing for sure that do count PLEX revenue the second they are purchased, it's now a puzzle as to why they have been pushing for years to burn off excessive stockpiles of PLEX.

Have they been pushing for years to burn the in-game PLEX stockpile? I know that's accepted lore on the forums but point me to an official statement by a CCP authority on RL finances - not a techie developer or a game economist. :)

If their deferred income was growing sharply, perhaps they'd be concerned, perhaps not. However, the increase in the current year's accounts is less than the previous year.

What may be happening is this: in the real world, PLEX is good for CCP. In the artificial constraints of the game, PLEX stockpiles may be leading to game imbalances, which their game - not RL - economist may be concerned about.

Long story short - gamers fretting about Jita PLEX stockpiles are mistakenly assuming those stockpiles have RL consequences to CCP.

Dethmourne Silvermane
Gallente
Origin.
Black Legion.
Posted - 2011.06.27 21:23:00 - [24]
 

I would argue their main concern about plex stockpiles is when we reconvert those into RL cash due to the plex for good events.

This would be the -only- major risk CCP has from unrealized plex.

Saving Face
Posted - 2011.06.27 21:25:00 - [25]
 

Originally by: Varo Jan
Have they been pushing for years to burn the in-game PLEX stockpile? I know that's accepted lore on the forums but point me to an official statement by a CCP authority on RL finances - not a techie developer or a game economist. :)



It's mostly accepted lore because they keep talking about MT. Clothes for PLEX were already a topic for the last CSM etc. One thing they have also done is transition PLEXes so they are full ingame items. Which means CCP owns them anyway, not the person who purchases them.

There is one exception. If they were planning to, say, make EVE f2p, then the subscription terms would change in such a way that, as per the EULA, the change allows us to get a refund for pre-paid subscription time. Something similar would happen if they increased the subscription fee.


Maplestone
Myth and Peace Lords
Posted - 2011.06.27 21:37:00 - [26]
 

Originally by: Varo Jan
Long story short: there is no problem with PLEX.


I would argue that for accounting purposes, PLEX should be treated the same as gift cards in circulation. They are a non-refundable commitment to future service.

Herschel Yamamoto
Agent-Orange
Nabaal Syndicate
Posted - 2011.06.27 21:37:00 - [27]
 

Originally by: Vaerah Vahrokha
Interesting cash flow, interesting good will.


The goodwill isn't particularly interesting - I'm 99% sure that's just from the White Wolf acquisition, with maybe a rounding error here or there. $4+M goodwill from White Wolf is a perfectly reasonable number, which is why it hasn't been written down.

SencneS
Rebellion Against Big Irreversible Dinks
Posted - 2011.06.27 21:38:00 - [28]
 

Originally by: Varo Jan
Have they been pushing for years to burn the in-game PLEX stockpile?
I know that's accepted lore on the forums but point me to an official statement by a CCP authority on RL finances - not a techie developer or a game economist. :)

If their deferred income was growing sharply, perhaps they'd be concerned, perhaps not. However, the increase in the current year's accounts is less than the previous year.

What may be happening is this: in the real world, PLEX is good for CCP. In the artificial constraints of the game, PLEX stockpiles may be leading to game imbalances, which their game - not RL - economist may be concerned about.

Long story short - gamers fretting about Jita PLEX stockpiles are mistakenly assuming those stockpiles have RL consequences to CCP.


Well they wouldn't bring a CCP Authority on to say "PLEX = blah blah blah" it's not a concern for the customers of their service. It's forum lore because of their actions, their advertising, new expansions, their offerings etc. It all kind of pointed to CCP was concerned of the stockpile either because it's a liability or some sort of unclaimed revenue.

I'm not disputing what you're saying I agree about 3.71 and 3.72, non-refundable and transfer of risk to buyer, that pretty much says they declare it the second they sell it.

It's possible Dr.E has some issue with them, that just seems rather pointed.. There are some massive stockpiles of crap items in EVE that don't get depleted but more get added daily, which could be game in-balancing in the future. It might be some sort of desire to keep PLEX price higher in game to promote Legal RMT.

Either way seeing this see does answer some of my personal questions once and for all, so it was refreshing to see this.

Varo Jan
Caravanserai Consulting
Posted - 2011.06.27 21:52:00 - [29]
 

Originally by: Maplestone
Originally by: Varo Jan
Long story short: there is no problem with PLEX.


I would argue that for accounting purposes, PLEX should be treated the same as gift cards in circulation. They are a non-refundable commitment to future service.

With respect, there is no point in arguing about appropriate accounting methods. They will differ from country to country. What we can deduce from their finstats is that CCP take them to revenue on purchase, and that Deloittes agree with that treatment.

Skarii TuThess
East Aridia Trading Company
Posted - 2011.06.27 21:53:00 - [30]
 

I also don't get the PLEX burning thing. I understand how they would want to remove PLEX from the game in order to control supply vs demand in order to keep PLEX prices up to a level where they are attractive to people to buy (thus increasing their income).

As I see it MT is not so much about trying to remove a stockpile of PLEX as finding another way by which there is a demand on the purchase of PLEX.


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